Can evidence of a supervisor’s boorish behavior be used to support both an unlawful discrimination claim against the employer and an allegation of harassment against an individual supervisor? The California Supreme Court recently said that was possible in the case of Roby v. McKesson , which may be a harbinger of how courts in other states may come to regard similar cases.

Workplace discrimination and workplace harassment clearly are different beasts. But can the same evidence of misconduct be used to prove both? Can evidence of a supervisor’s boorish behavior be used to support both an unlawful discrimination claim against the employer as well as an allegation of harassment based on disability against the individual supervisor?

These are questions that divide the interests of employers and employees: Employees would like to draw from a larger pool of misbehavior in order to prove their cases, or at least survive summary judgment, while employers would naturally prefer to limit the evidence that can be used to support one claim or the other.

Recently, the California Supreme Court took up this issue in Roby v. McKesson. It addressed whether an employee, in proving her harassment claim at trial against her individual supervisor, can rely on evidence of her supervisor’s boorish behavior, even though much of that behavior was undertaken in management meetings, and hence was on behalf of the employer.

In addition, the Supreme Court took up the perennial question of punitive damages: How much is too much when it comes to punishing an employer for the misbehavior of a lower-level supervisor?

While this California case has immediate implications for all employers with California-based employees, it may also be a harbinger of how courts in other states may come to regard these cases, and so has potential implications for employers nationwide.

The facts of Roby v. McKesson

Charlene Roby, a former customer service liaison employee for the distribution center of McKesson Corp., sued McKesson, claiming disability-based harassment and discrimination after her former supervisor disciplined and discharged her for excessive absenteeism.

Roby worked for McKesson for 25 years. Approximately two years before her discharge, she began experiencing what she described as panic attacks that required medical treatment and caused her to miss work in violation of McKesson’s attendance policy, which required employees to provide 24 hours’ advance notice for all absences, including medical absences. McKesson imposed a progressive disciplinary procedure based on the number of absences without notice an employee accrued within a 90-day period.

Starting in 1999, Roby accrued several “occasions” of absences without advance notice. These occasions resulted in Roby receiving an oral warning, a written warning, and then a final written warning during 1999. Under McKesson’s attendance policy, two further “occasions” within a 90-day period after a final warning would result in termination of employment.

In early 2000, Roby had two more occasions of absence. McKesson suspended Roby pending an investigation and subsequently terminated her employment. The documentation of illness in Roby’s personnel file was limited to brief medical notes that stated only that Roby “has been diagnosed with panic disorder,” that it is “not contagious” and that the “[p]anic episodes have been stabilized [with medication].” The notes, however, did not describe the panic disorder or connect any of Roby’s absences to the panic disorder.

Also, evidence in the case showed that Roby’s supervisors were aware of her condition. There was also evidence that Roby’s immediate supervisor mistreated Roby as a result of her condition. That supervisor’s behavior included making negative comments about Roby’s body odor in front of other workers; calling Roby “disgusting” because of sores on her arms and her excessive sweating; openly snubbing Roby by refusing to respond to Roby’s greetings and ignoring her at staff meetings; requiring Roby to answer phones during a company holiday party; and reprimanding Roby in front of others. After her termination, Roby filed suit against McKesson and her former supervisor.

The lawsuit

The matter proceeded to trial. The jury awarded Roby $3.5 million compensatory damages and $15 million punitive damages against McKesson. It awarded Roby $3,000 punitive damages and $500,000 compensatory damages against the individual supervisor. The appellate court reduced the compensatory damages to $1.4 million and the punitive damages to $2 million against McKesson and threw out the harassment verdict as to the individual supervisor.

McKesson appealed, and what ultimately led to the state Supreme Court’s review of the case was the appellate court’s decision to throw out the harassment verdict as to the individual manager, holding that certain personnel management actions were not evidence of harassment. (In California, supervisors cannot be held personally liable for discrimination; it is considered a “management action” for which the company itself, and not the individual manager, is liable. In contrast, California has held individuals liable for harassment.)

The California Supreme Court reversed and revised the verdict. While the court distinguished between discrimination and harassment, it noted that the proof of each could overlap: The mere fact that personnel actions were relevant to Roby’s discrimination claim did not prevent the same evidence from also being considered as evidence to support the harassment claim. Indeed, the court found that improperly motivated personnel actions contributed to harassment by communicating a hostile message and showing evidence of discriminatory animus on the part of those engaging in offensive behavior.

In contrast to the earlier California Supreme Court decision in Reno v. Baird, in which the court excluded all “personnel management” actions from the harassment evaluation, the Roby opinion allowed a supervisor’s “business and management” actions to be considered in determining whether the message conveyed by those actions constituted an offensively biased one that subjected a plaintiff to hostile workplace harassment.

In the Roby decision, the state Supreme Court then analyzed punitive damages in employment law cases. While acknowledging the relevance of a defendant company’s wealth as a consideration when applying constitutional limits to an award of punitive damages, the court held that the punitive damages award “must not punish the defendant simply for being wealthy.” Ultimately, it decided that a 1-to-1 ratio between actual and punitive damages was the constitutional limit, given the particular facts of this case.

Good, bad and ugly news for employers

The good news is that, at least in California, employers will not be punished with a lofty punitive damages award against them simply for being wealthy, as the court put it. Also, employers will have some support for arguing a 1-to-1 ratio for punitive damages awards, especially if the knowledge of the bad acts does not reach into the upper levels of management and if the verdict represents a high non-economic component compared with the economic damages component. If a liberal court, as some classify today’s California Supreme Court, can reach a decision like this, employers should not be surprised to find this logic picked up outside of California by more conservative courts.

The bad news is that Roby will likely make it harder for employers to remove cases to federal court on jurisdictional grounds for diversity of citizenship. Plaintiffs who add California-based supervisors as individual harassment defendants now have the ammunition to use additional conduct that previously was not considered in the harassment analysis, including “management” and “personnel” actions. This will make it harder for employers to argue that the individual is named by the plaintiff as a “sham defendant” for the purposes of keeping the case in state court. Other states attempting to reconcile the evidence to be used to determine discrimination and harassment in the workplace may potentially use the reasoning found in this California decision to do the same.

The ugly news is that Roby blurs the distinction between workplace discrimination (where only employers are liable) and harassment (where individual supervisors can be held accountable). Robymakes it easier for plaintiffs to establish workplace harassment claims in California, and will likely encourage claims where there is minimal evidence of personal abusive conduct. In addition, this makes it harder to get individual supervisors out of the case on summary judgment. Instead, it will be up to the juries to evaluate whether those “personnel decisions” created a “harassing” environment.

A glimmer of hope remains. In Roby, the managerial actions appear to have been couched in discriminatory animus. The California Supreme Court found Roby’s supervisor’s handling of other co-workers’ complaints about Roby’s body odor unnecessarily demeaning. The supervisor reprimanded Roby in front of co-workers, called her “disgusting” because of her open sores and excessive sweating, made facial expressions of disapproval when Roby took her rest breaks because of her panic attacks, and told her “to take more showers.” The hope is that this is the extreme case, where managerial actions are more than merely personnel decisions, and that the regular managerial actions do not amount to any harassment as a matter of law.

The lesson for employers

While Roby may not have much practical impact on how employers prevent and avoid liability for claims under California’s discrimination and harassment statutes, this case underlines how important it is for all employers to train and monitor their supervisors on how to perform their personnel and management duties—that is, that managers’ actions should be based on legitimate and lawful reasons. Employers should also work to promote and enforce nondiscrimination and anti-harassment policies in the workplace.

It also cannot hurt for employers to take another, closer look generally at their personnel policies and, in particular, their attendance policies. Employers should ensure that these policies not only are applied equally to all employees in the same business unit or group, but that they actually take into consideration some practical issues of employee absenteeism. Not every illness gives 24 hours’ notice, for example. Given the recent outbreaks of swine flu, employers with attendance policies that treat all absences the same may run the risk of lawsuits like Roby.